Commerce Bank buys Mercantile B&T of Boston

Commerce Bank & Trust, the largest bank based in Central Massachusetts, is expanding its presence in Boston by purchasing Mercantile Bank & Trust for $26.5 million in cash.

Commerce Bancshares Corp., the holding company for Commerce Bank, will pay $9.05 for each of the 2.9 million outstanding shares of Mercantile Bank's holding company, Mercantile Capital Corp.

It is the first acquisition for Worcester-based Commerce, which has grown rapidly — three times faster than the industry — for the past three years. Combined, Commerce and Mercantile will have $1.6 billion in assets and 16 retail locations, including three in Boston.

“It's really a natural extension for us, because we have customers that are already in Boston, so this gives them physical banking facilities there,” Commerce Bank President and Chief Executive Brian W. Thompson said yesterday

The acquisition by Commerce of a Boston bank would be a turn in a long history in which Boston banks have swallowed up Worcester institutions, beginning with Shawmut Corp.'s 1982 acquisition of Worcester Bancorp Inc., the parent of Worcester County National Bank, the first bank in Worcester County.

The trend continued with Shawmut's 1994 purchase of Peoples Bancorp of Worcester; Bank of New England's acquisitions of Worcester's Guaranty Bank & Trust and Consumers Savings Bank (Fleet Financial Group later bought the failed BNE); and Bank of Boston's acquisitions of Worcester's Mechanics Bank and Worcester County Institution for Savings. (Bank of Boston later merged with Fleet.)

Once the Commerce deal is complete, which will take several months, the Mercantile name will be replaced with the Commerce name. Mr. Thompson said Commerce plans to keep most of Mercantile's staff of about 35.

“We have no plans yet, but we'll try to accommodate absolutely as many as we can,” he said.

Charles P. Monaghan, president and chief executive officer of Mercantile Bank, said in a news release that Commerce will build on Mercantile's small-business lending initiatives.

Both Commerce and Mercantile have a focus on small businesses. Also, both banks have specialties: Commerce specializes in lending to buyers of classic cars and small airplanes, while Mercantile has a niche as a leading provider of loans for taxi medallions (licenses) in Boston and Cambridge.

And though Commerce comes from a smaller city, it is much bigger than the Boston bank it is buying.

Commerce has about $1.4 billion in assets and $1.2 billion in deposits. It has more than 200 employees. Last year, the bank bought its longtime headquarters building at 390 Main St. for more than $4 million.

“Worcester's our home,” Mr. Thompson said. “(The acquisition) will just be building on that.”

Mercantile Bank, founded in 1987 as a small neighborhood bank, serves Boston's Fenway, Brighton and South End neighborhoods. It has $191.9 million in assets and $161.8 million in deposits.

Commerce has 13 branches across Central Massachusetts, and Mercantile has three in Boston.

Both banks have been recognized for their financial strength by independent bank research firms.

Commerce, founded in 1955, is more than 90 percent owned by David G. “Duddie” Massad, who purchased the formerly struggling institution in 1993. Mr. Massad serves as bank chairman.

Commerce Bank's purchase of Mercantile comes a few years after the last major bank acquisition in Central Massachusetts. In June 2009, Commonwealth National Bank agreed to be acquired by the parent company of United Bank for $25 million, ending a three-way bidding war.

In October 2007, Hudson Savings Bank and The Westborough Bank merged and started doing business under a new name, Avidia Bank.